Read for 4 minutes (Reuters) – NEW YORK (Reuters) – Cathie Wood’s ARK funds, which had some of the worst declines among all U.S. equity funds in the first three months of the year, are making a recovery thanks to a more than 10% jump in growth companies since the beginning of the quarter. In this illustration photo taken in Bordeaux, France, on March 30, 2016, a man points to a computer screen showing stock information. REUTERS/FILES/Regis Duvignau The ARK Innovation fund, which is managed by business founder Wood, gained 3.5 percent on Monday, bringing its year-to-date return to 4.3 percent, emphasizing a roughly 31 percent rally since its May 13 low. The fund had been down as much as 9% for the year prior to its current rise. Falling fears of out-of-control inflation, as well as the failure of U.S. bond yields to maintain their dramatic first-quarter rally, are fueling a return to the type of hyper-growth stocks that helped Wood post the best returns of all actively managed mutual fund managers tracked by Morningstar in 2020. Monday’s rally was aided by Saturday’s announcement of advancements in gene editing, which boosted the stock of numerous biotech businesses that Wood’s firm owns in several of its funds, including its flagship Ark Innovation fund. “As fears of increasing interest rates faded, investors were rewarded for sticking with ARK and its long-term growth strategy,” said Todd Rosenbluth, director of mutual fund research at CFRA. “ARKK has outperformed the overall market in the last month, and it is now in the black after being in the red for over a month.” Regeneron Pharmaceuticals Inc has risen 22.1 percent from its March low, and Intellia Therapeutics Inc has risen more than 50 percent following publishing good interim data from its ongoing early-stage study for its genome editing candidate, NTLA-2001, over the weekend. Since the beginning of the quarter, the Russell 1000 Growth index has gained 11.4 percent, nearly tripling the 4.6 percent increase in the Russell 1000 Value index. The gains came as the price of lumber and other commodities fell from multi-year highs, easing investor concerns about rising inflation. Many investors were surprised when the Federal Reserve took a more hawkish stance at its most recent policy meeting, pushing the benchmark 10-year Treasury yield below 1.5 percent on predictions that the central bank would be less tolerant of increasing inflation. As rising yields threaten to diminish the value of their longer-term cash flows, this has helped boost tech and growth companies. Despite ARK’s recent advances, Morningstar data shows that its flagship fund’s performance remains in the lowest 100th percentile among U.S. mid-cap growth funds. According to Jim Paulsen, chief investment strategist at the Leuthold Group, the fund’s recent hot streak will be largely determined by the direction of the 10-year Treasury yield. Lower rates eat into the profitability of cyclical stocks like financials, so there’s a strong correlation between the 10-year and whether it’s growth or value overall, he added. Despite the fact that growth companies are now outperforming, Paulsen is skeptical that the surge will continue. “I don’t think we’ve seen the last of the inflation concern,” he said, adding that the economy will grow at a rapid pace this year and next. David Randall contributed reporting from New York, and Matthew Lewis edited the piece. Continue reading
